New and Noteworthy

New and Noteworthy

Professional Answers to Common Tax Questions

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The arrival of spring is highly anticipated each year, but the one thing about this season that most people don’t look forward to is doing their taxes. Each year Americans are faced with a number of tax questions, like “Should I hire a professional tax preparer or should I do it myself,” “What can I write off,” or “Will I get any money back or will I owe the government?”

Cindy Hockenberry, tax knowledge center supervisor at the National Association of Tax Professionals (NATP), answers tax questions to help ease the minds of those that are nervous about the tax preparation process.

South Source: What are some of the most helpful resources are available to people that choose to do their own taxes?

Cindy Hockenberry: If a taxpayer has relatively low income ($58,000 or less), there are free file programs available through the IRS website. Many of them do a great job of preparing the return and guiding the taxpayer through the steps necessary to file an accurate return. It is critical that all the instructions are read carefully and all steps followed. Many of the programs will also offer tax assistance in the event the taxpayer is stumped by a question. The IRS also has many free resources and FAQs available at the IRS website.

SS: What are some of the benefits of hiring a professional tax preparer?

CH: A tax professional will stand behind their work and will offer assistance if the IRS comes knocking on your door. In addition, a true tax professional will maintain continuing education that enables him or her to stay on top of all the new tax laws. A tax professional will ask you the right questions to ensure you are deducting everything you are entitled to deduct and pay the least amount of tax.

SS: Do the majority of people attempt to do their own taxes, or do most people hire a professional tax preparer?

CH: More than half (but not much more) of the taxpayers hire a professional to prepare the tax return. In general, the more complex the return, the more likely a professional is needed and hired. Much like oil changes, haircuts, and surgery, some things are best left to someone who knows what they are doing.

SS: What is the average cost of hiring a professional tax preparer to do your taxes for you?

CH: The answer really depends on geography. Preparers in larger urban areas will charge more than rural preparers. On average, a federal Form 1040 with itemized deductions and one state return could cost between $150-$200. If the return includes an earned income tax credit calculation, stock sales, rental property, or a small business, the cost can jump dramatically. It’s always best to ask for a quote. The more precise you are when explaining what you believe to be your tax situation, the more accurate the quote will be.

SS: What is the penalty for people who fail to file their taxes by April 15th?

CH: The IRS only assesses a penalty for late filing when the taxpayer has a balance due. If the taxpayer is due a refund, they can file up to three years later, still get the refund, and owe no penalty. The failure to file penalty is 5% for each month, or part of a month that the return is late, but not more than 25%. The penalty is based on the amount of tax not paid by the due date (generally April 15). If you owe tax and file late, you will also have to pay a failure to pay penalty of ½ of 1% (.5%) of the unpaid tax each month or part of a month after the due date that the tax is not paid.

Author: Laura Jerpi

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